CAFETERIA
PLAN

What Is A Cafeteria Plan?
The Internal Revenue Service allows employees to pay some benefit premiums with
before tax dollars.. All health benefit
plans offered in the District, dental plan, Vision, and the Cancer plans are available for payment through the
Cafeteria Plan.

For many employees this becomes a wonderful benefit because it can allow your
gross salary to be reduced, which in turn lowers the amount of federal income
tax you pay each pay period! You see an immediate tax savings.

Is This Legal?
Absolutely! It is allowed under Section 125 of the tax code. Anyone
with doubts or questions can contact the local IRS Office directly for full
details.

Will I Have To Pay Taxes On These Benefits
Later?
No. The benefit costs are deducted from your salary before taxes, decreasing
the amount of salary subject to tax. At the end of the year, the salary
that is reported to the IRS and subject to tax is the lower, after benefits
amount.

What Does It Cost To Be On The Cafeteria
Plan?
It costs you nothing. This is a service provided by North East ISD.

How Much Will I Save Each Month By Being
On The Cafeteria Plan?
It is impossible to predict what everyone will save each month because savings
will vary according to which benefits are placed on the Cafeteria Plan and
individual salaries and rates of tax. Anyone needing help in calculating
their savings should contact their personal accountant.

When you decide to pay premiums through the Cafeteria Plan, your selections
are irrevocable for the benefit yearunless there is a change in family status as outlined in the Internal Revenue
Code, Section 125, and related regulations.

These changes include:

a divorce, legal separation or marriage

the death of a child or spouse

the birth of a child

the legal adoption of a child

change in custody of a child

FMLA leave of absence

Open Enrollment

change or loss of employement by employee, spouse or dependent

ineligibility of a dependent child.

Unless you experience a qualifying family status change, you may not drop
your coverage for that benefit year. Specific IRS requirements apply even
within the listed categories. Employee Benefits must be notified in writing
within thirty one (31) days of any applicable status change in order to make
election changes.

Is My Teacher Retirement System Deduction
Affected?
No. The TRS contribution will remain at the 7.05% of your monthly or biweekly
gross salary.

How Does the Plan Work?
A. Employee on a Monthly Payroll: This employee has a monthly gross income of
$3,225.00, filed a W-4 as married with one (1) allowance, has a $377.00 deduction for health coverage, and a $73.00
deduction for dental coverage. By having the premiums on the Cafeteria Plan,
this employee will increase his/her monthly take-home pay by $74.02. Savings will vary for each employee.

Calculation WITH Cafeteria Plan

Monthly Gross

$3,225.00

TRS Contribution

-206.40

Health, Dental

-450.00

Taxable Income

2,568.60

Federal Withholding Tax

-169.46

TRS Insurance (.65%)

-20.96

FICA (1.45%)

-40.24

Monthly Take Home Pay

$2,337.94

Calculation WITHOUT Cafeteria Plan

Monthly Gross

$3,225.00

TRS contribution

-206.40

Taxable Income

3,018.60

Federal Withholding Tax

-236.96

TRS Insurance (.65%)

-20.96

FICA (1.45%)

-46.76

Health, Dental

-450.00

Monthly Take Home Pay

$2,263.92

B. Emplopyee on a Bi-Weekly Payroll: This employee has a bi-weekly gross income
of $1,100.00, filed a W-4 as married with one (1) allowance, has a $173.50 deduction for health coverage(one-half of
monthly amount), and $36.50 deduction for dental coverage. By having the
premiums on the Cafeteria Plan, this employee will increase his/her bi-weekly
take-home pay by $24.04.